AirCal Owners Reportedly to Share $30-Million Profit
AirCal’s two principal shareholders will split a profit of about $30 million when the proposed sale of the regional carrier to American Airlines is completed next year, according to Orange County developer George L. Argyros, who teamed with builder William Lyon to buy AirCal in a bankruptcy proceeding in 1981.
“They doubled their investment in 5 1/2 years,” was the reaction of Mike Myer, managing partner of the Newport Beach office of the Kenneth Leventhal accounting firm.
Myer figures that Argyros and Lyon initially invested $31 million in AirCal, raising the remaining $30.55 million of the purchase price by leveraging the company. “It is a good return,” Myer said.
However, Argyros, owner of the Seattle Mariners baseball team and Arnel Development Co. of Santa Ana, noted that he and Lyon are not “making the huge profit” that many observers believe.
While the two will receive $90 million for their AirCal shares, they have poured about $60 million into the airline over the years--to finance their initial acquisition and to keep the airline aloft in very bumpy economic weather.
In all, American has agreed to pay $225 million for AirCal. The rest of the money will go to holders of the regional carrier’s remaining common stock and its convertible preferred shares. Asked if he realized the profits he initially had hoped for when he bought AirCal, Argyros responded with an emphatic “No.”
He recalled, “We had no idea the economy would go into a nose dive when we bought it.”
Throughout the early 1980s AirCal was buffeted by a recession, soaring fuel prices, an air controller’s strike, fare wars and changing county policies at its home airport, John Wayne, where some of the airline’s vital flight schedule was slashed.
In December, 1982, at the end of a year when AirCal sustained a record loss of $35.6 million, Lyon took over the presidency of the company and initiated a new strategy, which included laying off more than a third of the airline’s work force and persuading the remainder to accept salary cuts.
“I think it was worth it,” Argyros said Tuesday. “We were able to successfully turn the company around, and I think it is a much stronger company. . . . It took a lot of money and a lot of white knuckles.”
Argyros said that today’s consolidation move in the airline industry prompted the decision to sell AirCal to a national airline.
In today’s marketing climate, he said, it is crucial for an airline to offer passengers frequent-flier programs that can be used on transcontinental flights. The alternative to merging with American Airlines, he said, would have been for AirCal to forge a joint marketing arrangement with a major carrier. In that case, he said, AirCal would have lost its identity anyway. “It would have been like merging without (getting) money.”
Argyros declined to say whether AirCal got “top dollar” from American Airlines. “It is a good price,” he said. “We think it is the best kind of a transaction and with the best company, and we felt it was important as well that not only the shareholders were taken care of but the employees and the communities that we serve.”
